In going door to door trying to sell a Freight Management service, as well as in my experience working in companies, I have had the opportunity to see a variety of ways in which companies, large and small, were managing their Freight and Logistics spend.
Most everyone felt they were doing a good job already. But I’ve seen instances where Freight is one of the top 5 largest expenses within a company. Yet it is managed by one or two people, with no support, and no visibility from upper management.
Depending on the industry your transportation spend can make up anywhere from 1-10% of your company’s total revenue. Aside from the cost impact the service implications of a poor Freight management system are enormous.
So do you have a strategy for managing Freight and Logistics or are you spinning your wheels?
Freight and Logistics
Cost is a very important reason to ensure that you have a robust Freight Management strategy. The costs of inbound logistics, outbound logistics, poor delivery performance and your supporting organization can be large.
Service levels are another critical dimension. If you are in the E-Commerce channel then you should know what customers want. They want not only free shipping but they also may want same day or next day delivery. If you are in a business supporting some manufacturing or retail industries you may also be subject to performance penalties if deliveries or late.
Supply chain visibility is also incredibly important these days. If you are managing, or hope to manage, a reasonably effective supply chain you need to know when goods are coming in to your company, moving through your company, and leaving your company. You can not get this visibility without a plan. You must manage Freight and Logistics.
With all of that considered Freight Management can be a source of competitive differentiation and an enabler of strong financial performance.
So what is your Freight Management strategy? Too often I have seen companies that fail to grasp the importance of having a strategy. They are spending millions and millions of dollars on Freight without a plan. They leave it to someone on the dock or someone at a desk to call carriers to deliver or pick up goods, and that is the extent of their plan. Yet at the same time these companies can be highly defensive when you come in and suggest to them that you could manage their Freight for them.
There are many elements of a Freight Strategy which should include:
Insource or Outsource Decision
You should consciously, and objectively, decide if you are best served by managing freight yourself or outsourcing all or a part of this responsibility.
If you are going to do this yourself you have to be prepared to invest in the organization, systems, processes, cash consumption, and capital investment that goes along with a proper Freight Management capability.
If Freight Management is not a core competency for your company you should consider outsourcing. This does not mean that you can’t manage the day-to-day scheduling or carriers. It does mean that you will gain tremendous industry expertise, greater spend leverage and lower costs, ready-made supplier relationships, expanded scope, and electronic connectivity.
If you are going to manage Freight yourself you need to invest in resource to support it. It is not reasonable to expect someone with no training or expertise to merely arrange for trucks to arrive and depart with no ability to manage the larger strategy.
Again Freight Management not only impacts cost but service levels as well. Many industries, whether in support of Just-In-Time manufacturing or Same-Day/Next-Day E-Commerce delivery require a very sophisticated and proven Freight Management system.
The design of your products and their packaging can also have a tremendous impact on your Freight requirements and spending. It is important to have your Freight experts at the table as elements such as packaging are being considered. I have seen examples where Merchants have selected products for which the cost of shipping exceeded the margin on the product many times over, all because the Freight team was not brought into the original decision making and planning process.
These capabilities can only be provided with the appropriate support team of subject matter experts in place.
I have been in, and called on, many companies which have not only dozens but hundreds of different carriers around the world. There have been no efforts at supplier consolidation or performance management. The result is a very inefficient, costly, and unreliable delivery system.
Having a smaller set of preferred suppliers is important. You need to be able to count on these suppliers to meet all of your delivery needs and requests. You need suppliers who can grow with you and provide various lanes, modes and options. And you need suppliers who can provide visibility through electronic connectivity.
You also need to be able to negotiate pricing and other terms and conditions with your suppliers. When you have a decentralized, loose management structure it is likely that you do not have a standard set of contracts. Further you are not aggregating your spend to maximize your own negotiating leverage. Without any structure I have seen companies that have literally not negotiated with their suppliers in years. They have no targets, no industry awareness, and they are most certainly leaving a lot of money on the table.
And as with any other supplier you should have a set of KPIs. You also need a performance scorecard that you create and review with each of your carriers. You must hold them to account in meeting your expectations. Without this visibility you have no control. And you have no ability to improve performance other than by relating anecdotal examples to your carriers.
Depending upon the size of your company, and the location of your suppliers, facilities, and customers, you may need to use some combination of road, rail, ocean or air transportation.
I have seen many examples where companies rely on air travel, for instance, in order to quickly ship from Asia to North America. Yet just as often they do not understand that with proper planning they could be shipping via ocean and saving a considerable amount of cost.
End-To-End Supply Chain Visibility
Proper supply chain management requires visibility to where goods are throughout your supply chain. This can only be accomplished if you are engaged with carriers that are enabled with electronic connectivity. With this connectivity you should be able to see where goods are without having to pick up the phone or send emails and wait for responses.
You will also want this visibility anytime and anywhere. That means that you need to have electronic access through your smart phone or tablet or laptop, and not just from your desktop.
As mentioned previously customers can be very demanding. If you do not have a freight management capability that will meet their expectations then you will not have those customers for long.
Just-In-Time manufacturing can mean that you need to deliver goods within an hour or within hours of receiving a pull signal from your customer. Otherwise you may pay huge penalties.
E-Commerce customers want free shipping. They also want rapid delivery (even though they don’t want to pay for it) which can mean delivery as quickly as within one hour, but more likely Same-Day or Next-Day delivery. The inability to ship and deliver quickly to these customers often means they will just go to your competition and order from them instead. Further if you can not lower your cost of freight and logistics then this will severely impact your company’s bottom line.
Meeting these expectations may also mean you have to be able to support new capabilities such as drop shipping from your suppliers to your customers, or cross-docking within your facility for fast turnaround.
Real-Time Freight and Logistics Industry Dynamics
The transportation industry is not without its incongruities or capacity constraints. From time to time you will hear about a strike at one port or another. Or during the Holiday season you will certainly hear about carriers stretched to their limit in terms of the capacity they have to deliver your goods.
Changes in capacity or larger industry dynamics can also impact the rates that you will have to pay for transportation and fuel.
Your team needs to have its finger on the pulse of what is going on in the industry. Proper planning and advanced visibility will buy you time. You need to ensure that you can proactively manage through all of these circumstances without causing a disruption in your supply line.
Transportation Management System (TMS)
As mentioned in our blog post Freight and Logistics (Part 1) – Why don’t you have a TMS Solution yet? I truly believe you need a TMS solution of some kind. It makes the most sense these days especially with the advent of cloud based solutions. Partner with a company that can provide you with a cloud based TMS capability.
This level of electronic connectivity should also provide a dramatic improvement in productivity. The process of invoice reconciliation and error management which can be very time-consuming and costly if managed manually.
Everywhere possible you want to mitigate the impact of shipping on the environment. Working with your carriers you should be able to reduce the number of miles that trucks travel. Whether empty or half full you can take measures to reduce fuel consumption.
Increasing the density of your packaging (see our blog post E-Commerce Fulfillment (Part 4) – Stop Shipping Air!) can reduce both your cost and wasted fuel consumption.
There are numerous ways that you can take to reduce the environmental impact of shipping. You must incorporate this into your Freight Management strategy.
Freight Management is critically important. Every company has to move goods and packages from one point to another. And it demands having a strategy in place. Proper Freight Management can be a source of competitive differentiation along with its impact on your financial performance.
Whether you choose to manage Freight and Logistics internally or to outsource it you still need a strategy. Don’t just go through the motions. With a strategy in place you will clearly be moving forward!